Stifel sees healthy 2021 for waste sector

Stifel sees healthy 2021 for waste sector

Equity research firm sees disciplined management and sector growth benefiting waste company bottom lines next year.

December 21, 2020

For all that COVID-19 has done to the state of North American public health and the economy in 2020, the waste sector has maintained profitability and is set to see more profits accrue in 2021, says Baltimore-based equity research firm Stifel.

The company and its Group Head and Managing Director of Diversified Industrials Michael E. Hoffman have released a Solid Waste 2021 Outlook report predicting “room for upside surprise” for waste company shareholders. Hoffman and his Stifel colleagues point to cost savings “extracted” in 2020 lasting into 2021, combined with “new business growth from the strong housing cycle and lastly a better pace of mergers and acquisitions” as reasons for optimism.

Other healthy tailwinds for some waste firms, according to Stifel, include burgeoning attention to environmental, social and corporate governance (ESG) goals among multinational firms, plus renewable identification number (RIN) and compressed natural gas (CNG) tax credit aspects of operations.

Regarding Stifel’s own holdings, Hoffman writes, “We have added GFL Environmental to the Stifel Select List, and it is one of our Top Picks for 2021. We maintain our ‘Own a Garbage Stock’ thesis into 2021, as the group is poised to exceed expectations and defy on fundamentals the cyclical-from-defensive rotation overlaying the market.”

The equity research firm gives a “buy” rating to shares of six publicly traded waste firms, including Toronto-based GFL Environmental; Houston-based Waste Management Inc. (WM); Phoenix-based Republic Services Inc.; Toronto- and Texas-based Waste Connections; Vermont-based Casella Waste Systems; and New Jersey-based Covanta Holding.

Of WM, Stifel says its Advanced Disposal acquisition “overshadows nearly all the residual pandemic impact and creates the best potential for an upside surprise.”

Regarding Republic Services, the firm writes that its “geographic mix, cost controls [and] real price combine to drive consistent sustainable operating leverage to profits and free cash flow.”

The full 38-page Stifel Solid Waste 2021 Outlook report can be found on this web page.